Arline is a 70 year old widow with no dependents. She wants to invest in an annuity that will produce income now. She has $100,000 to invest and wants to receive the most she can in monthly income. Which of the following is the most suitable annuity for Arline based on her objective?

• A longevity Annuity.
• A 20 year term certain, fixed Annuity
• An immediate, single promium life annuity.
• A deferred, fixed annuit

 

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Doisneau 22-year bonds have an annual coupon interest of 8 ​percent, make interest payments on a semiannual​ basis, and have a ​$1, 000 par value. If the bonds are trading with a​ market’s required yield to maturity of 16 ​percent, are these premium or discount​ bonds? Explain your answer. What is the price of the​ bonds?

a. If the bonds are trading with a yield to maturity of 16

then ​ 

A.

the bonds should be selling at a premium

because the​ bond’s coupon rate is greater

than the yield to maturity of similar bonds.

B.

there is not enough information to judge the value of the bonds.

C.

the bonds should be selling at par because the​ bond’s coupon rate is equal to the yield to maturity of similar bonds.

D.

the bonds should be selling at a discount

because the​ bond’s coupon rate is less than the yield to maturity of similar bonds.

 

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